Finding a mortgage
can be a strenuous process. It can seem as though there are dozens of
different types with different interest rates, different lengths and other
terms. To find the "right" mortgage not only should you consider
those items, you should also consider your objectives:
- How long do you
expect to live in the home?
- Do you see the
mortgage just as a "financing vehicle" or do you have anxiety
about being in debt with a desire to pay off the mortgage as fast as
- What is your tolerance
for increases in monthly payments?
Your evaluation should
include types of mortgages (fixed rate, adjustable variable rate and balloon)
along with the lengths and other terms. Here is a calculator that will
help you determine monthly mortgage payment levels with different types
As you look at these
results, there are a few things that you will probably notice:
- Even though the
interest rates on shorter term fixed rate mortgages may be lower, the
monthly payments are probably higher. This is because the amount of
principal payment each month is larger. You are paying down the mortgage
- Arms with shorter
term initial rate periods (for example, 1 and 3 years) usually have
lower rates and lower monthly payments. This is due to the "yield
curve" sloping upward with longer maturities. Longer term loans
have higher rates.
Even though shorter
term Arms and potentially balloon mortgages offer lower monthly payments,
it is important to understand that rates on Arms can increase after the
initial period and that the entire balance of a balloon mortgage comes
due at the end of the mortgage period. If you are considering an ARM or
balloon mortgage, be sure that you would be able to afford a higher monthly
mortgage payment if your rate increases. Here is a calculator that can
help you evaluate the impact of increasing mortgage rates.
Consider Increasing Your Down Payment
One of the
easiest ways to reduce your monthly payments is to simply borrow less.
A larger down payment will reduce the interest you pay and may help you
qualify for a lower rate. It can certainly improve your chances of having
your mortgage application approved. Increasing your down payment, especially
if your planned purchase is in the future is easier with an automatic
savings plan. Decide how much you want to save and over what period. Then
find out how much you need to put aside each month to have the larger
down payment you want.
Start Your Automatic Savings Today
no easier way to save than with an automatic savings plan. If you are
already using direct deposit for your paycheck, have Forest Bluff Financial
Services transfer the amount each month. Here is an Automatic
Transfer Authorization form to help you enroll. You can also have
your employer deduct the amount each month and deposit into the account
of your choice. Here is a Payroll
Deduction Direct Deposit form.
If you are not already
using direct deposit for your paycheck, here is a Payroll
Direct Deposit form to help you get started. You
can also call a service representative at 800/723-7237 or email
for more information.
Other Issues to
- The size of your
mortgage payment should only be one part of your mortgage decision making
- If "paying
off" your mortgage or significantly reducing your total debt level
is important, a shorter term fixed rate mortgage with a 20 or 15 year
term may be right for you.
- If you plan to
live in your home for only a short time (for example, five years or
less), you may want to seriously consider an adjustable rate mortgage
with an initial rate term that matches your moving plans.
- Balloon mortgages
are usually less attractive than a similar term ARM. With a balloon
mortgage, you will need to secure a new mortgage at the end of the term
subjecting you to not only to changes in rates, but also the costs and
process of getting that new mortgage.
- Be sure that you
can afford your mortgage payments - both at the time you get it and
in the event that you get an ARM and rates have risen when the initial
rate period expires.
Choosing the mortgage
that is right for you is critical. Consider what you want your mortgage
to do for you. Factor in your plans for how long you anticipate needing
the mortgage (how long you are going to live in the home) and be sure
that you can accept the risk that your monthly payments may rise if you
choose an adjustable rate or balloon mortgage.
Control of Your Financial Future
Articles from our
library about buying and owning a home.
implications of home ownership
refinancing regardless of rates
your first home
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